Market Report & Analysis for 6/5/2019 Morning Edition

Morning Market Overview

Oil Futures near 4mos. Lows as Economy Slows, Trade Risks WASHINGTON, D.C. (DTN) 

Oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange extended losses in early trade Tuesday, with the U.S. West Texas Intermediate benchmark trading near a four-month low, as trade tensions spark fear of a global economic slowdown. At 9 AM ET, NYMEX July WTI futures were down $0.25 at $53 bbl, holding above Monday’s $52.11 bbl near four-month low on the spot continuous chart. ICE August Brent were trading near a $60.21 four-month spot low at $60.85, down about $0.40. NYMEX July ULSD futures were down 0.7cts at $1.7995 gallon after trading at a $1.7824 five-month low on the spot chart. July RBOB futures were trading near a $1.7029 three-month spot low at $1.7115 gallon, down about 3cts.

WTI, Brent continued lower in overnight trade alongside a broader selloff in global equities and other risk assets, fueled by the latest weak manufacturing data from China. China’s National Bureau of Statistics released its official Purchasing Manufacturing Index reading for May, which fell to 49.4 last month from 50.1 in April, while economists anticipated the index at 49.9 for the profiled month.

For China, PMI reading is among economic indicators that investors globally watch closely for signs of trouble amid ongoing U.S.–China trade dispute. Wall Street Journal reported that diminished exports are punishing small companies and employment in China. Employment sub-index in the world’s second largest economy hit the lowest point since 2009, while both output and new orders weakened since the start of the year.

Despite signs of economic troubles, China upped the ante in ongoing trade dispute with the United States over the weekend by releasing an official government document blaming the Trump administration for the breakdown of the trade talks. China raised the stakes last week by announcing it would stop all purchases of U.S. soybeans and threatened to cut off exports of rare-earth materials to the United States. Markets nosedived at the start of the trading week after the Trump administration threatened to raise tariffs on a key U.S. trading partner and ally over immigration disagreements.

White House announced last week it would slap a progressive 5% tariff on Mexico, with an option of 5% increase each month until October if the country doesn’t stop the flow of migrants into the United States. While Mexico has not responded yet with retaliatory measures, the country’s top diplomats on Monday rejected an idea of granting asylum status for Central American refugees in Mexico. According to reports, Trump’s tariffs could effect as much as $360 billion in traded goods and would represent the biggest imposition to date of such duties on a U.S. trading partner. Moreover, Trump’s tariffs will cover sectors not previously involved in the trade war, including crude oil and petroleum products. U.S.–Mexico energy trade account for nearly 12% of total commerce done between the two countries. U.S. business groups and lawmakers already expressed opposition to the plan, pointing to rising costs for U.S. consumers and diminished corporate profits.

Reportedly, the announcement caught many in the White House by surprise, while Trump’s top economic advisor Robert Lighthizer opposed the plan. Goldman Sachs said on Sunday that “escalating trade wars and weaker activity indicators have finally caught up with oil market sentiment.” Oil futures dropped almost 20% in May, negating most of the gains from the beginning of the year.

“The magnitude and velocity of the move lower were further exacerbated by growing concerns over strong US production growth and rising inventories,” Goldman said. Preliminary data on U.S. crude stockpiles for the week ended May 31 is due for release by American Petroleum Institute at 4:30 PM ET, while offici